I'm a thirty-year veteran of Wall Street and an outspoken critic of ineffective regulation and an advocate for economic and political sanity. Following a career as an in-house lawyer and industry regulator, I am now in private practice representing member firms, registered persons, Whistleblowers, and defrauded investors. I publish the RRBDlaw.com and the BrokeAndBroker.com websites.

SEC Uncovers New Lunatic or Is That Lunar-tic Fringe on Wall Street

According to a Securities And Exchange Commission Complaint,SEC v. Gurudeo a/k/a “Buddy” Persaud (MDF, June 20, 2012) , from about July 2007 until about January 2011, Gurudeo “Buddy” Persaud allegedly engaged in a Ponzi scheme whereby he lost $400,000 of investor funds through his trading and diverted at least $415,000 to pay for his personal expenses. Purportedly, Persaud was a registered representative at an Orlando, FL brokerage firm and also the operator of the White Elephant Trading Company LLC.

Yup — you got it — the “White Elephant” trading company. You’d think that alone would have given some folks pause before writing out their checks.

The Complaint alleges that Persaud solicited investments for White Elephant and promised to pay investors 6% to 18% annual returns. Allegedly, he told prospective investors they would be making a risk-free investment in White Elephant’s private equity fund, which would invest in the futures market and other markets. In furtherance of his alleged scheme, Persaud is charged with touting his experience in the financial services industry as a certified financial planner and providing personal guarantees to his victims that their principal contributions were secure.

You’ll pardon me if I don’t go in to a lot more detail because, well, hey, it’s really just same-old-same-old Ponzi crap. Persaud allegedly promised huge returns, puffed up his credentials, and created phony account statements to hide his trading losses. Notwithstanding the hyperbole, he managed to allegedly con some $1 million from 14 Florida, Connecticut, and New York investors. The SEC asserts that these victims included one unaccredited investor and at least two unsophisticated ones. The SEC is seeking disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Persaud to enjoin him from future violations of the federal securities laws.

NOTE: A Complaint merely contains allegations and the defendant is presumed innocent unless and until proven guilty in a court of law.

Having been told that I am a world class raconteur, I have opted to make this story a bit more interesting by holding back on the really bizarre, absurd, jaw-dropping part of this case. What I will tell you is that I don’t think there are any crystal balls on Wall Street, certainly not if the recent messes involving Goldman Sachs, Citigroup, Morgan Stanley, JP Morgan, and MF Global are any indication. Why do I bring that up? Oh, I dunno. Just thought it would be a point to raise.

As a final flourish, permit me to elucidate you with this citation from the Complaint:

32. However, Persaud did not tell investors that in making at least 90% of his trading decisions, he relied on directional market forecasts based on lunar cycles and gravitational pull provided by an internet service.

33. The primary principle underlying Persaud’s trading strategy was that the gravitational pull between the moon and Earth affects mass human behavior, which in turn affects the stock markets. For example, Persaud believed that when the moon is positioned so there is a greater gravitational pull on humans, they feel down and are therefore more inclined to sell securities in the markets.

34. Persaud failed to disclose he would trade investors’ contributions based on lunar cycles and the gravitational pull between Earth and the moon.

UPDATE:

In response to several messages from “Street Sweeper’ readers, I note that the genesis of this gravitational theory of investing may well come from the “Paradigm” which was a 2006 novel by Robert Taylor in which he sets forth the “Taylor Effect.” Apparently, in “DaVinci Code” fashion, the author presented an investment theory not much unlike the one involved in the SEC’s case. The core of Taylor’s theory is that gravitational fields influence human behavior and, accordingly, the stock market. The theory is more fully explained in this press release by his publisher at http://www.paradigmbook.com/pk_article.html

Notwithstanding the merits of the Taylor Effect, the SEC’s issue seems largely one of non-disclosure by Persaud that he was investing according to lunar cycles or gravitational pull rather than his accumulated years of purported investing expertise. Ultimately, the SEC will likely argue that a reasonable investor would have wanted to know that Persaud was utilizing the Taylor Effect as the basis for his investment decisions, if, in fact, that premise is correct. For all I know, Persaud may have come up with his own gravitational theory or expanded upon Taylor’s.

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Actually, Susan, hold off on the Farmer’s Almanac. My guess is that the genesis of this lunar theory comes from the “Paradigm” which was a 2006 novel by Robert Taylor. Apparently, in DaVinci Code fashion, the author presented an investment theory not much unlike the one involved in the SEC’s case.

It’s taken a few months for this news of this scam to flash in front of me here in my watchtower in the City of London. OK, Buddy was wrong to pay investors out of other investors money, wrong to pay himself on the quiet.

But he was upfront with investors about the moon and gravity, and science is on his side here.

If he and his lawyers have their wits about them they could successfully argue that his strategy is supported by refereed research papers published by good mainstream researchers in reputable finance journals, which show that a buy full moon/ sell new moon strategy has racked up an average 5% excess return on more than 30 stock indexes around the world.